Breach of good faith duty underlies bad faith insurance claim

An insurer has a legal duty to act with good faith and fair dealing in every insurance contract. When that duty is breached, a tort and breach of contract action for bad faith insurance may be allowed, depending upon the facts of the case. As a general rule in Florida and elsewhere, the insurer will incur liability to the insured if it recklessly or in bad faith exposes the insured to liability in derogation of its contract of insurance.

In one case, for example, a construction company sued its insurer for over $900,000 for failing to settle a claim against the construction company and exposing it to even higher damages that were not covered by the insurance contract. The complaint alleges that the insurer, United Fire & Casualty, did not communicate settlement offers to the insured, the Roxana Construction Company. It alleges that United Fire acted in wanton and willful disregard of the insurance contract between them.

The company also alleged that United Fire breached its fiduciary duty to act for the welfare and benefit of the insured by failing to settle for the policy limits. When a case against an insured is of reasonably clear liability against that insured, and where damages clearly go over the policy limits, the insurer must in good faith settle the claim for the policy limits. That generally protects the insured from being held liable on any excess amounts over and above the policy limit.

When the insurer breaches that duty and for no justifiable reason refuses to settle the claim against the insured, to the insured’s financial detriment, the insurer must pay for all amounts assessed against the insured. In this case, Roxana Construction is suing United Fire for the $904,000 judgment against Roxana which was entered due to the delay created by the insurer and due to the insurer’s failure to pay the policy limits. These general rules apply in Florida and all other jurisdictions with respect to bad faith insurance claims.